The question of whether the federal Office of Federal Contract Compliance Programs (“OFCCP”) has jurisdiction over acute care hospitals has taken a new turn. The Labor Department Administrative Review Board (“ARB”) has reconsidered and reversed an October 2012 dismissal of an OFCCP complaint against Florida Hospital of Orlando for lack of jurisdiction. Florida Hospital provides medical services for a federal contractor, Humana, which in turn has established networks of health care providers for active and retired military members under a contract with TRICARE, the Department of Defense’s health care program. This development means the Department of Labor’s quest to obtain jurisdiction over acute care hospitals via federal contract status has new life.

As noted in our October 29, 2012 Legal Alert, a divided panel of ARB held in October 2012 that Section 715 of the National Defense Authorization Act (“NDAA”) removed OFCCP jurisdiction over Florida Hospital under both prongs of the agency’s definition of a “subcontract.” The OFCCP’s regulations define “subcontract” as an agreement (i) for the “purchase, sale or use of personal property or nonpersonal services which, in whole or in part, is necessary to the performance of any one or more contracts” (prong one), or (ii) “under which any portion of the contractor's obligation under any one or more contracts is performed or undertaken or assumed” (prong two). 41 C.F.R. § 60-1.3.

The NDAA was signed into law in December 2011. Section 715 provides, in pertinent part:

For the purpose of determining whether network providers ... are subcontractors for purposes of the Federal Acquisition Regulation or any other law, a TRICARE managed care support contract that includes the requirement to establish, manage, or maintain a network of providers may not be considered to be a contract for the performance of health care services or supplies ....

ARB dismissed the OFCCP’s complaint against Florida Hospital for lack of jurisdiction in light of the NDAA.

The next month, OFCCP moved for reconsideration, and the ARB granted that request. On July 22, 2013, the majority of ARB found that (i) Section 715 of the NDAA only barred “prong two” jurisdiction, and (ii) “prong one” of OFCCP’s subcontract definition remains a “viable alternative basis” for OFCCP jurisdiction. The majority explained that “no language in Section 715 categorically bans the ability to label a TRICARE network provider as a ‘subcontractor’ or categorically eliminates OFCCP jurisdiction over TRICARE network providers.” Such a “free-standing and unconditional ban” had appeared in a prior version of the NDAA, but this language was ultimately removed from the final version, thus “implicitly allowing for network providers to be considered subcontractors in some instances.” 

OFCCP’s prong one “subcontract” definition includes two specific conditions: (i) the agreement must be for the purchase, sale, or use of personal property or nonpersonal services, and (ii) the property or services must be necessary to the prime contractor’s performance under its federal contract. The “purchase condition” deals with the nature of the purchased items or services and not the prime contractor’s duties (which are the focus of Section 715). The “necessary for performance condition” requires a determination on “what the prime contractor is required to do” and whether the purchased items or services are “necessary” for those contractual duties.

The majority of ARB found that Florida Hospital fell within OFCCP’s jurisdiction under prong one of the subcontract definition. Specifically, Florida Hospital had an agreement to provide “nonpersonal services” as a participant in Humana Military Healthcare Service’s network, as it is “undisputed that neither [Humana] nor TRICARE has any involvement, direction or control over the provision of health care services/supplies provided by Florida Hospital. Moreover, these services were “necessary to the performance” of Humana’s prime federal contract with TRICARE. 

The majority, however, remanded the case to an Administrative Law Judge to consider whether TRICARE qualifies as an OFCCP-exempt federal financial assistance program. If the reimbursement payments that Florida Hospital receives from Humana under TRICARE qualify as federal financial assistance – as do reimbursements under Medicare Part A (health insurance), Part B (hospital insurance), and Medicaid – OFCCP would not have jurisdiction over Florida Hospital based on the TRICARE program.